Question

Please show all work and clear steps as to how you got each solution!!

Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT) at $20 per share, 200 shares of Lowes (LOW) at $40 per share, and 100 shares of Ball Corporation (BLL) at $80 per share. Over the next year Ball has a return of 12.5%, Lowes has a return of 20%, and Abbott Labs has a return of -10%. (a) What is the weight of each of three stocks-Abbott Labs, Lowes, and Ball Corporation in your portfolio at the beginning of the year (as percents)? Abbott Labs Lowes Ball Corporation (b) What is the return on your portfolio over the year (as percents)? % (c) What is the total profit (capital gains + income received) you made on your portfolio during the year (in $)? $

Answer 1

a). Amount invested in ABT = No. of shares* Share Price = 200 * $20 = $4,000

Amount invested in LOW = No. of shares* Share Price = 200 * $40 = $8,000

Amount invested in BLL = No. of shares* Share Price = 100 * $80 = $8,000

Weight(ABT) = Amount invested in ABT / Total Investment = $4,000 / $20,000 = 0.20, or 20%

Weight(LOW) = Amount invested in LOW / Total Investment = $8,000 / $20,000 = 0.40, or 40%

Weight(BLL) = Amount invested in BLL / Total Investment = $8,000 / $20,000 = 0.40, or 40%

b). Portfolio's Return = [Weight(i) * Return(i)]

= [0.20 * -10%] + [0.40 * 20%] + [0.40 * 12.5%]

= -2% + 8% + 5% = 11%

c). Total Profit made during the year = Total Investment Made * Portfolio's Return

= $20,000 * 0.11 = $2,200